FITs 'in-depth'

From this page, you can dig 'in-depth' into 9 recent EU and US studies demonstrating the advantages of FITs, comparing them with other support mechanisms, and considering how they can be combined.

From each of the summaries below, you can access a short synopsis of the study, and the full document:

A 2008 paper published jointly by the World Future Council, the Heinrich Boll Foundation and the North Carolina Solar Center reviews the implementation of feed-in tariff legislation and other proposed measures to increase renewable electricity generation across the United States, and considers the outlook for the future of policy in this area.

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This paper examines a policy context in which feed-in tariff policies have driven rapid renewable energy growth for electricity in Europe, but have not been widely adopted in North America to date.

Following a detailed review of the experience of six US states which have introduced feed-in tariff legislation, and a survey of feed-in tariff proposals in eight other states, the paper considers the outlook for Community-Based Energy Development policies, which have the potential to be implemented in a way that is similar to feed-in tariffs. There is also a discussion of a federal feed-in tariff bill proposed by Congressman Jay Inslee.

Some states are proposing policies which follow the European model of creating performance-based electricity incentives based on different technologies’ generation costs, whereas other states are considering alternative approaches.

To date, no broad, open-ended feed-in tariffs have been created in the US, but the authors conclude that political momentum for the policy appears to be building, and the US dialogue on feed-in tariffs is continuing to evolve.

Rickerson W., Bennhold F., Bradbury J. (2008): Feed-in Tariffs and Renewable Energy in the USA - a Policy Update

A 2007 study examining whether feed-in tariffs can work with existing and proposed US state-level policies and electricity market structures, responding to 3 common arguments used in the US against FITs, and concluding that feed-in tariffs can work in US states.

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This report by US-based authors "examines whether feed-in tariffs (on their own or in hybrid) can be adapted to work in concert with existing and proposed US state-level policies and electricity market structures", and concludes that "[g]iven the progress that has been made in the US with state-level RPS, US states could effectively serve as laboratories for combining RPS and feed-in tariff policies in innovative and synergistic ways" (p. 24).

In coming to this conclusion, the authors consider EU developments and observe that "[f]eed-in tariffs have thus far driven rapid renewable energy capacity expansion in several European Union member nations while RPS polices have not." (p. 1). Comparing feed-in tariffs and Renewable Portfolio Standards (RPS)/Tradable Green Certificates (TGCs) schemes, the report counteracts the 3 main arguments that are usually put forward in the US against REFITs. 

The first argument against feed-in tariffs is that "they cannot function in tandem with a competitive retail electricity market", particularly because of a purchase obligation and the distorting effects on a competitive market (p.12). The authors point out, however, that it is possible to design feed-in tariffs in a competitively neutral way, "if applied to regulated elements of the industry or if a cost recovery and sharing mechanism is developed" (p. 13).

The second argument against FITs is that they are negatively associated with expensive burdens borne by utility rate-payers under the 1978 Public Utility Regulatory Policies Act (PURPA), which required utilities to buy electricity from independent renewable energy and co-generation plants on the basis of the utilities' avoided costs. The authors point out that major states allowed escalating long-term forecasts of future costs to be used when determining the purchase price, which in the event did not escalate due to a shift from oil to cheaper gas. They continue: "[i]nvoking PURPA as a counter argument to feed-in tariffs is viewed [by feed-in supporters] as misleading because it ignores the shifts in electricity price trends, renewable energy generation costs, electricity industry structure, and policy maker attitudes toward renewable energy that have occurred in the last 15 years" (p. 13). In addition, FITs can target single technologies and sizes, PURPA didn't.

Finally, feed-in tariffs in the US are often confronted with the argument that "[t]oo much political capital has been already been invested in RPS" (p. 14). The authors note, however, that this argument is based on the assumption that "the two policies are mutually exclusive and that RPS would have to be repealed if feed-in tariffs were to be introduced. [...] Rather than viewing feed-in tariffs as a competing policy, states can view feed-in tariffs as another tool to be used for meeting existing or proposed RPS targets." (p. 14).

Rickerson, W., Grace, R. C. (2007): The Debate over Fixed Price Incentives for Renewable Electricity in Europe and the United States: Fallout and Future Directions, Washington.

A 2007 study analysing the support schemes in place in EU member states, concluding that more than 34% of electricity consumption can be provided from renewable energy sources by 2020 with improved national policies

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This study analysed the effectiveness and economic efficiency of currently-implemented support schemes for renewable energies in the electricity sector in the enlarged European Union, and sets out different scenarios for the development of renewable electricity until 2020.

The report concludes that with improved national policies a share of more than 34% of the overall electricity consumption can be provided by renewable energy sources until 2020 (as envisaged by the European Commission in the 'Energy Package' of 10 January 2007) without the need for harmonising support mechanisms. The cornerstone for reaching ambitious targets is technology-specific support (as guaranteed under feed-in tariffs) "as a pure concentration on currently most cost-competitive technologies will tend to exclude more advanced technologies which are needed in the long run." (p. 36). This way, the overall cost for society can be minimised. With respect to past experience the report stresses the fact that "most of the European success story to promote RES-E during the past decades in an effective and economically way was driven by implemented feed-in tariffs" (p. 36). 

Optres (2007): Recommendation for implementing effective and efficient renewable electricity policies, Vienna, February 2007

A 2007 study examining the economic impact of climate change, finding that feed-in tariffs have led to more electricity being produced from renewable energy sources at lower costs than RPS/TGC schemes

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The famous "Stern Report" on the financial costs of global climate change was published by the former chief economist of the World Bank, Nicolas Stern. Part IV of the report (Policy Responses for Mitigation) gives a short overview of the existing of incentives for renewable energy projects and differentiates between price based (e.g. REFIT laws) and quantity based (e.g. Tradable Green Certificates) support mechanisms. It argues that both have proven to be effective in the past "but existing experience favours price-based support mechanisms" (p.366) and a comparison of tradable quotas and feed-in tariffs reveals that the latter achieves "larger deployment at lower costs" (p. 366). 

Stern, N. (2007): The Economics of Climate Change - Stern Review, Part IV: Policy Responses for Mitigation, Cambridge University Press, Cambridge, UK

A 2006 study analysing and comparing the support schemes for electricity produced from renewable energy sources in EU member states, including findings on the comparative effectiveness of feed-in tariffs and TGC/RPS schemes

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This report analyses the general characteristics of the support schemes for electricity produced from renewable energy sources, evaluates the currently-implemented support mechanisms in the EU, and investigates the impact of support mechanisms on the future deployment of renewable electricity, taking national viewpoints into account.

The report also compares feed-in tariffs and quota systems (Tradable Green Certificates (TGCs)/Renewable Portfolio Standards (RPS)). In this respect, the report concludes that "feed-in tariffs (FITs) have been successful in triggering a considerable increase of RES-E technologies in almost all the countries in which they have been introduced and where their effectiveness was not significantly hampered by major barriers (administrative barriers, grid access, etc.)." (p. 88).

In addition, the report states that "the risk premium required by investors can be minimised by the high level of price security" given by feed-in tariffs, thus lowering the overall costs for consumers and assuring "relatively homogenous premium costs for society over time" (pp. 88).

Quota systems, by contrast, still have to be proven to be successful and effective. In general, "Investors are confronted with a higher risk" and the overall cost for society is comparatively higher when setting ambitious targets. (p. 90). So far, the potential advantages of these systems (e.g. targets can be reached exactly) are only valid in theory and are not yet proven in the "real world".

Federal Environmental Agency (2006): Monitoring and evaluation of policy instruments tosupport renewable electricity in EU Member States - Final Report, Dessau, Germany

A 2006 study evaluating design options for feed-in tariffs, based on best practice in the EU, and making policy recommendations

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This in-depth research paper, from two research institutes, evaluates many features of feed-in tariffs in the different EU Member States, gives advice with respect to the different design options as they are presented on this website, and makes several policy recommendations.

The paper covers key issues in relation to the Price Objective, such as setting and adjusting the tariff (or price), the purchase obligation, and the level and duration of support (Chapter 3), and mechanisms for sharing the burden of extra consumer costs (Chapter 4): and in relation to the Access Objective, such as different ways of distributing the cost of grid connection (Chapter 5).

Its policy recommendations (Chapter 6) include the need for a stable, transparent policy framework accompanied by long term targets and sufficiently long periods for which the tariff is guaranteed; the setting of technology-specific tariff levels; and the importance of reducing the tariff annually for new plants as an incentive for cost reductions (tariff degression).

Klein et al. (2006): Evaluation of different Feed-in tariff design options - Best practise paper for the International Feed-In Cooperation.

A 2005 official report from the European Commission assessing the success of the support schemes promoting the electricity consumption from renewable energy sources saying that for wind energy feed-in tariffs are the most effective and also show better outcomes then the other support schemes  for other sectors.

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The report from the European Commission on the performance of support mechanisms in the different Member States is part of the reporting system set out in the renewable electricity Directive 2001/77/EC. The report, issued in 2005, was to "assess the success, including cost effectiveness, of the support systems" (Directive 2001/77/EC, § 4) promoting the consumption of electricity from renewable energy sources in conformity with the national indicative targets. Most of all, feed-in tariffs are compared with Tradable Green Certificate schemes.

The sector specific analysis concludes that "the most effective systems for wind energy are currently the feed-in tariff systems..." In addition, the report states that "Regarding profit, the feed-in systems investigated are effective with a relatively low producer profit." Even though the analysis for the biomass sector is not just as clear cut the report reveals that "feed-in tariffs in general show better outcomes."

European Commission (2005): The support of electricity from renewable sources, COM(2005) 627 final

A 2005 article examining the factors influencing the diffusion of the different support mechanisms in the EU and concluding that most member states bank on fixed tariffs.

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In this article the authors evaluate the factors influencing the spread of the different support schemes in the European Union.

The article argues that in the late 80s and early 90s feed-in tariffs were introduced in some member states of the European Union, starting with Portugal in 1988, followed by Germany (1990), Denmark (1992) and Spain (1994). In the late 90s, a few European countries implemented quota systems ((Tradable Green Certificates (TGC)/Renewable Portfolio Standards (RPS)), starting with the Netherlands in 1998.

The authors identify three major reasons for the introduction of this new support mechanism: First, the European Commission explicitly favoured TGCs and RPS over feed-in tariffs at the time, because they were thought to be more compatible with the Common European electricity market. Second, there was an open law case against the German Feed-in tariff and, third, the "liberal economic orientation of many states favoured the increasing spread of quota models."

After the turn of the century, however, the conditions for feed-in tariffs were more favourable again, as the law case against the German Feed-in tariff was lost and no harmonisation of the support mechanism on the basis of TGC/RPS was agreed on in the renewable energy Directive 2001/77/EC. Nowadays, 18 countries in the European Union have implemented feed-in tariffs while only six countries have chosen TGC/RPS.

Bechberger, M., Reiche, D. (2005): Europe banks on fixed tariffs, New Energy, 2/2005, pp. 14-16.

A 2005 study comparing the different support mechanisms for electricity produced from renewable energy sources in the EU finding that there is little evidence of effectiveness beyond feed-in tariffs and premiums

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The report, carried out by the European Wind Energy Association (EWEA), in cooperation with research institutes specialised in energy matters from different EU Member States, compares the support mechanisms in place for electricity produced from renewable energy sources. The report includes a detailed analysis of all major support mechanisms including the specific design. In this respect, the paper calls for voluntary best practice design guidelines (p. 71).

The report concludes that there is "little evidence of effectiveness beyond feed-in tariffs and premiums" (p. 71). Based on the analysis of past experiences it appears that "policies based on fixed tariffs and premiums can be designed to work effectively" (p.71). Moreover, "[m]ost countries with mechanisms to support renewables have, at some point, used feed-in tariffs. However, not all feed-in mechanisms have contributed to an increase in renewable electricity production. It is the design of a mechanism, in combination with other measures that determines its success." (p. 71)

EWEA (2005): Support schemes for renewable energy - a comparative analysis of payment mechanisms in the EU, Brussels

A 2004 study concluding that the German feed-in tariff system has led to significantly more installed wind capacity, with lower resource-adjusted costs to society averaged over a project lifetime, and stronger competition among turbine producers and constructors, than under the UK's system based on tradable certificates.

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This paper compares the German feed-in tariff system and the UK's Renewables Obligation Certificates (a type of Tradable Green Certificates (TGC) or Renewables Portfolio Standards (RPS)) in respect of electricity produced from wind.

It reveals that the German feed-in tariff led to more installed capacity: at the end of 2003 the installed capacity in Germany (14.609 MW) was than more 22 times higher than in the UK (649 MW).

The report concludes that "the resource-adjusted cost to society of the feed in tariff is currently lower than the cost of the ROC, when averaged over the lifetime of the project." (p. 31).

The report continues saying that "A frequent criticism of the Feed in Tariff is that it does not generate sufficient competition. However, our analysis revealed stronger competition among turbine producers and constructors under the feed in tariff than under either of the UK schemes." (p. 31).

Butler, L., Neuhoff, K. (2004): Comparison of Feed in Tariff, Quota and Auction Mechanisms to Support Wind Power Development, Cambridge Working Papers in Economics CWPE 0503